Saudis insist oil supply cuts are not needed

Crude oil prices have plummeted as global demand has eased and new supplies such as US shale oil have come on to the market AFP/Getty

Gulf states yesterday insisted that oil prices will recover without intervention from the Opec cartel, arguing that current prices will boost global economic growth.

Crude oil prices have plummeted as global demand has eased and new supplies such as US shale oil have come on to the market. The cost of benchmark Brent crude has nearly halved from $115 a barrel in June to below $60 last week.

But although oil producers and explorers from Aberdeen to Alberta are struggling to operate at a profit, Opec has refused to cut supply in order to lift prices.

Ali al-Naimi, the Saudi oil minister, yesterday said he was “100 per cent not pleased” with current prices, but insisted: “I am confident the oil market will improve.”

He added: “Current prices do not encourage investment, but they stimulate global economic growth, leading ultimately to an increase in global demand and a slowdown in the growth of supplies.”

Saudi Arabia, Opec (and the world’s) largest oil exporter, has been the “swing supplier” in the past, cutting or increasing production in order to stabilise global oil prices at around $100 a barrel. The Gulf state blames the current price slump on speculators and a lack of co-operation from producers outside Opec, and Mr Naimi said the kingdom would not act this time.

“If they [non-Opec oil producers] want to cut production they are welcome,” he told reporters on the sidelines of the 10th Arab Energy Conference in the United Arab Emirates. “Certainly Saudi Arabia is not going to cut.”

Attempts to get non-Opec producers such as Russia to sign up to output reductions before last month’s meeting of the oil cartel failed. “I don’t think we [Opec] need to cut,” Kuwait’s oil minister told Reuters yesterday. “We gave a chance to others, they were not willing to do so.”

Russia, which relies on oil for half of its tax revenues, has warned that its economy could shrink 5 per cent next year if prices stay near $60.

North Sea producers meanwhile have been freezing staff wages and cutting back on contractors, with firms such as Premier Oil warning that it is “almost impossible to make money” at prices below $70.

Venezuela, a founder member of Opec, needs oil to be about $117 for its industry to operate at a profit, while Canada’s tar sand industry does not break even until about $95 a barrel.

While Gulf producers’ revenues will also be hit by the falling prices, they enjoy some of the lowest production costs, with Saudi Arabia’s industry believed to break even at $70 a barrel. Saudi Arabia also has $1 trillion in foreign currency reserves to fall back on.

Asked yesterday about whether Opec and non-Opec producers could now co-ordinate cuts, Mr Naimi replied: “The best thing for everybody is to let the most efficient producers produce.”